The digital revolution is altering the landscape of telephone service provisioning as well as the regulation of service providers. Rhode Island customers - residential and business - are aware of these changes and expect these changes to affect their service choices and their phone rates.

The survey data reveals that residential customers would like a choice of service providers at the local level. Most consumers would like to exercise their choices directly, and 44% of them would choose Bell Atlantic. Interest in switching away from Bell Atlantic is higher among those consumers who have taken advantage of some of the market changes in the area of long distance. Consumers (55%) are also interested in integrated services although 45% prefer to have different suppliers for various services such as voice, cable TV, Internet, wireless, etc.

Unlike residential customers, business customers in Rhode Island have had choices available to them for some time. Since the survey was completed, the choices within Rhode Island have increased with Cox Communications, Log On America and Choice One, among others, offering services to local businesses. The survey results suggest that while a large majority of the business customers (78%) are aware of alternative suppliers, only about 19 % currently obtain local phone services from a company other than Bell Atlantic. Awareness of choices is greater among companies with more employees (at the interview site). Business customers also recognize some of the potential problems with choice including higher costs, interconnection problems and fraudulent business practices.

Based on the survey responses from both residential and business customers, it is quite clear that there will be increased segmentation of the local market. Part of this segmentation will be a result of the customers' willingness or unwillingness to change suppliers based on prices, service bundles, and customer service. There is inertia in the marketplace, with many customers unwilling to switch away from their current provider as well as a drive for change. Different service providers will also contribute to the segmentation of the market as they attempt to carve out a profitable position by focusing on specific groups of customers.

The segmentation of the markets will not be smooth or predictable. It is unclear how customers - consumer as well as business - will educate themselves on the dynamics of market choices in order to achieve the full benefits of technological advances. Regulation of service providers will become increasingly challenging and the burden of ensuring quality, reliable service and fair business practices will continue to rest with local regulatory authorities.

We are in the midst of a digital revolution and distance has lost its meaning. According to a recent analysis in Business Week

"changes in technology and regulation are erasing the distinctions between types of calling. With today's digital networks, there's not much reason to think about where a call goes or what it carries - voice, data, or video" ("Why Talk is so Cheap" September 13, 1999, p. 34-36).

How is the digital revolution affecting the local market in Rhode Island? How are residential and business customers adapting to the changes in terms of their expectations and behaviors regarding telecommunications services and suppliers? To find out, RITIM – the Research Institute for Telecommunications and Information Marketing in the College of Business Administration at the University of Rhode Island – conducted a survey of customers in Rhode Island. The Rhode Island Public Utilities Commission funded the survey.

A 6 page questionnaire was used to conduct a telephone survey among randomly selected residential customers in Rhode Island. Over 810 customers were contacted by phone by the Research Center in Business and Economics at the University of Rhode Island and 250 customers completed the telephone survey. In addition, student assistants conducted face-to-face interviews among 24 residential customers. These respondents were recommended by Community Action groups from four different communities in Rhode Island and represented special interest consumer groups. A total of 274 usable responses form the basis of this final report. The questionnaire and the responses to each question are attached as Appendix 1.1 and 1.2.

A 6.5 page questionnaire was mailed to selected business customers in Rhode Island. The list of customers was drawn from various sources – membership in Rhode Island Telecommunications Associations (RITA), membership in several Chambers of Commerce and from a list of technology-oriented customers purchased from a commercial source.

400 questionnaires were mailed. 37 usable responses form the basis of this final report. The questionnaire and the responses to each question are attached as Appendix 2.1 and 2.2.

1. Residential Customers

The mail and personal interview methods were able to generate a broad, representative sample of Rhode Island's household customers. The respondents were drawn from several different groups in terms of age, income and education. Individuals contacted in person tended to be slightly younger and of lower income groups than individuals contacted by phone. Details of the demographic composition of the residential customers are included in the Appendix 1.3.

 

TABLE 1: SAMPLE COMPOSITION:

RESIDENTIAL CUSTOMERS

	Telephone Sample	Interview Sample	Total Sample
Age: Less than 45 years over 45 years	47% 51%	88% 12%	50% 49%
Sex: Female	57%	87%	59%
Household Income: Less than $30,000 More than $30,000 No Response	26% 49% 26%	46% 16% 38%	28% 45% 27%
Total	250	24	274

 

2. Business Customers

The 37 business customers who responded to the mail survey included small and large businesses; while the majority of them had a single operation within Rhode Island, there were several businesses with multiple locations within and outside the state. Business customers represented both Central Office/Centrex users as well as users with PBX/Keysystem and private networks. Details of the demographic composition of the business customers are included in the Appendix 2.3.

	Telephone Sample
Size: No. of employees at interview site: Less than 10 More than 10	54% 46%
Geographic Scope: Limited to Rhode Island Not limited to Rhode Island	46% 54%
Number of Locations: Single Multiple	65% 35%

In general, residential customers have a higher opinion of the state’s telephone infrastructure: 78% of the residential customers as compared to 41% of the business customers thought Rhode Island has an up-to-date telephone system.

There are some systematic differences in opinion among business customers. An index of customer opinion, taking the sample composition into consideration, has been created to put the opinion in perspective. The index suggests that the opinion "Rhode Island has an up-to-date telephone system" is proportionately greater among larger companies and companies with a wider geographic scope of operations. Conversely, companies who have operations only in Rhode Island and employ less than 25 employees tend to agree less with this opinion.

With digital communication, distance-sensitive rates are fast becoming irrelevant. In a small state like Rhode Island, they make even less sense. It is not surprising that customers in Rhode Island – both residential and business – overwhelmingly want a one state, one rate plan. As one residential customer put it, echoing the sentiments of most others, " Rhode Island is too small and should have only one rate."

If a one-state one-rate plan requires a slightly higher rate for all calls, 34% of the residential customers are willing to pay that rate. The willingness to pay the higher rate is greater (41%) among those residential customers who approve of a one-state, one-rate plan. Business customers favor a one-rate plan even more strongly than residential customers.

Both residential and business customers overwhelmingly approve a flat rate to Providence

from any where in the state. Customers realize that in a digital world, distance should have little

impact on phone rates.

At the time of the survey, residential customers had no choice regarding local telephone services. Only very recently have new competitors like Log On America started to advertise telephone services to both residential and business customers in Rhode Island.

The survey data reveals that residential customers would like such a choice – 65% say they would like more than one service provider.

Business customers in Rhode Island, on the other hand, have had choices available to them for some time. Since the survey was completed, the choices within Rhode Island have increased with Cox Communications, Log On America and Choice One, among others, offering services to local businesses. The survey results suggest that a large majority of the business customers (78%) are aware of alternative suppliers, but only about 19% currently obtain local phone services from a company other than Bell Atlantic.

As new suppliers start to offer their services to local customers, they have to make their services known through marketing and advertising campaigns. It appears from the survey data that the campaigns have been successful in reaching businesses in Rhode Island. The level of awareness is slightly greater among the larger businesses (awareness index=133) than among smaller businesses (awareness index 90.7).

Similar patterns are observed among more established businesses and businesses with a wider geographical scope of operations.

Given a strong interest in multiple service providers at the local level, most people would like to exercise that choice directly. When asked to choose between four methods of selecting a local phone company when more than one company is able to provide local phone service, very few would like the government to choose for them. Also, there is very limited interest in transaction-based exchange, where the access code would be dialed each time a call is made. Several residential customers feel "users should not have to dial access codes".

Instead, most residential customers would like to choose one specific company from a choice of companies. For several customers that specific company would be Bell Atlantic (44%); another 31% would choose a specific company other than Bell Atlantic and 18% expressed an interest in not having a primary telephone company. For the residential market as a whole, preference for Bell Atlantic is higher (47%) when we include those who did not want multiple service providers.

Most business customers would like to select a specific company; 51% would select a specific company other than Bell Atlantic and 30% would select Bell Atlantic.

Some business customers with greater technical sophistication offered some creative solutions to address these issues:

• "I would program my PBX to use the least cost system as the first choice; use other providers for overflow"

• "State should allow computer to pick the cheapest rate for the call or set up a non-profit that could provide this service"

• "Keep Bell Atlantic lines for overflow and incoming------use another carrier for local, toll and international"

There are several differences in preference for Bell Atlantic among business customers.

• The interest in maintaining Bell Atlantic as the primary supplier is higher among smaller companies: 39 percent of companies with 1-25 employees indicated interest in keeping Bell Atlantic compared to only 13 percent of the very large companies (employees over 100 at the particular site).

• The preference for Bell Atlantic as the primary supplier does not vary a great deal among businesses with different years of operation.

• There also seems to be a preference for Bell Atlantic among businesses with national and international operations.

Is the interest in multiple service providers at the local level supported by intention to switch from the current service provider? For residential customers, 47% are unlikely to switch from Bell Atlantic. However, 25% are likely to switch and another 29% are not certain about their future behaviors. Business customers appear to be particularly uncertain about their behaviors and most did not know what they are likely to do in the future.

Switching need not be a zero-sum game. Given the choice of buying services from more than one service provider, nearly a third (34%) of the residential customers would use Bell Atlantic in combination with other suppliers. About 13% of the customers would not buy any services from Bell Atlantic but over half of the residential customers (53%) would like to buy all their services from Bell Atlantic.

Based on these questions regarding choice at the local level, the survey data shows that while residential customers want choice, 34% of them would be willing to split their purchases between multiple providers and only 13% would switch completely away from their current provider.

Dissatisfaction with Bell Atlantic service is not the main reason for interest in local competition. Some want more choice and some feel that a larger number of suppliers would improve the availability and quality of services. Comments by business and residential customers include:

• "there is a need for competition";

• "lower rates and cost savings";
• "diverse service; more service; better service/ response"
• "fiber optics";
• "straight talk about services and product";

• "need more telephone companies, more options not competition"

Customers also recognize that increased choice may also mean some costs, some disadvantages compared to the present system. Business customers articulated a variety of concerns such as:

• "Two bills may actually cost more; potential higher cost";

• "decreased customer service";
• "confusion; billing confusion";
• "interconnection problems - make integrity of networks difficult";
• "name recognition (no track record)";
• "more telephone solicitations to change; scams";
• "more phone companies";
• "more telemarketing";
• "decreased government regulation potential".

In terms of ratings, customers give their current service provider high marks. For residential customers, it is Bell Atlantic which is rated higher than their long distance or Cable TV service.

Business customers, on the other hand, rate long distance service more favorably than local service.

Evidence from past behaviors support similar levels of expected switching behaviors at the local level. For instance, 33% of residential customers and 43% of business customers have changed their long distance provider in the past. There is substantial use of 10-10 service by residential customers, even if it is not consistently used. Even for Internet service, which has limited penetration among the sample and is a relatively new service, customers have changed their providers.

As alternatives to Bell Atlantic become available in Rhode Island, we can safely say that customers will switch to other providers. This will be stronger among businesses than among residential customers and some customers will be able to incorporate more than one supplier. From a marketing point of view, how different suppliers package, price and service their offers will determine whether they will succeed in gaining and retaining these customers. This is evident from some of the reasons given by business customers for changing long distance providers in the past:

• "Higher prices, poor services";
• "pricing and customer service";
• "non response and high rates";
• "an offer made to us";
• "national contract signed with new company";
• "pricing; conversion to cellular service as EMP standard; data communications".

Past experience with change also makes an impact on future intentions about local services. Residential customers who have switched their long distance services or have used 10-10xx services in the past also express greater interest in changing their current service provider (the index for likely to switch is greater than 100 in both these groups). On the other hand, those who have not switched long distance in the past or have not used a 10-10xx service in the past, express a lower likelihood of switching their service provider. Similarly, those who have not switched these two services in the past also express greater reluctance to switch their local service provider in the future.

Past Switching Behaviors	Likely to Switch	Unlikely to Switch
Have Switched Long Distance Provider in the Past Have Not Switched Long Distance Provider in the Past	31% Index=124 21% Index=84	46% Index=98 49% Index=104
Have Used 10-10xx Service in the Past Have Not Used 10-10xx Service In the Past	26% Index=116 24% Index=96	42% Index=89 32% Index=68

To some extent, customers are interested in integrated services getting their voice, data, wire and wireless, phone, cable TV and Internet service from a single provider. 57% of residential customers want such integrated services; 22% do not want it and the remaining 20% are not certain. Bell Atlantic is the preferred supplier with 51% of the sample designating Bell Atlantic as the sole supplier. Among those wanting one-stop shopping, 53% designate Bell Atlantic as the supplier of integrated services.

Business customers, in general, are not quite decided about one-stop shopping and 40% do not express interest in any direction. Among those who want a single source for all their telecommunications services, almost half (46%) expressed interest in Cable TV service being the integrated service provider. This interest is expressed even though there is very little experience with Cable TV providing integrated services or even voice services in the local market.

Residential customers currently have little or no choice regarding local telephone services. But they would like such a choice – 65% say they would like more than one service provider. Business customers in Rhode Island already have a choice. Nearly 78 % of businesses are aware of local phone service alternative. But only about 19 % currently obtain local phone services from a company other than Bell Atlantic.

As choices increase in the marketplace, customers will have to examine the alternatives and decide for themselves. It will not always be easy and there will be disadvantages including higher costs, confusion and less government oversight. But there is no going back !

Age	Telephone Sample		Personal Interviews		Combined Total
	N	%	N	%	N	%
18-29 years	33	13	9	38	42	15
30-45 years	84	34	12	50	96	35
46-60 years	66	26	2	8	68	25
Over 60 years	62	25	1	4	63	23
Total	250	100%	24	100%	274	100%

Education	Telephone Sample		Personal Interviews		Combined Total
	N	%	N	%	N	%
Some High School	18	7	1	4	19	7
High School Graduate	63	25	8	33	71	26
Some College	90	36	8	33	98	36
College Graduate	45	18	1	4	46	17
Post Graduate	28	11	1	4	29	11
Total	250	100%	24	100%	274	100%

Age	Telephone Sample		Personal Interviews		Combined Total
	N	%	N	%	N	%
Less than $20,000	29	12	8	33	37	14
$20,000 - $30,000	34	14	3	13	37	14
$30,000 - $40,000	27	11	2	8	29	11
$40,000 - $60,000	52	21	1	4	53	19
Over $60,000	43	17	1	4	44	16
No Response	65	26	9	38	74	27
Total	250	100%	24	100%	274	100%

D: Respondent's Gender

Gender	Telephone Sample		Personal Interviews		Combined Total
	N	%	N	%	N	%
Male	108	43	3	13	111	41
Female	142	57	21	87	163	59
Total	250	100%	24	100%	274	100%

Number of Employees	Number	Percent
1-10	20	54.1
11-99	9	24.3
Over 100	8	21.6
Total	37	100.0

Business Type	Number	Percent
Computer Services & Software Development	9	24.3
Business Services	7	18.9
General Services	6	16.2
Manufacturing	4	10.8
Government & Education	3	8.1
Retail	2	5.4
Health Care	2	5.4
Non Profit	2	5.4
Other	1	2.7
No response	1	2.7
Total	37	100.0

Number of locations	Number	Percent
Multiple locations within Rhode Island only	3	8.1
Multiple locations Outside Rhode Island	10	27.0
Single locations within Rhode Island	24	64.9
Total	37	100.0

Geographic Scope of Business	Number	Percent
Local	9	24.3
Statewide	8	21.6
Northeast Region	12	32.4
National/ International	8	21.6
Total	37	100.0

Type of Telecom System/Service	Number	Percent
PBX/Keysystem	9	24.1
Private Network	6	16.2
Central Office	20	54.1
Centrex	7	18.9
Hybrid Network	2	5.4

Telecom Management within organization	Number	Percent
Manager dedicated to voice needs	17	45.9
Manager dedicated to data needs	21	56.8
Chief Information Officer role in organization	17	45.9

STATED ADVANTAGES OF INCREASED LOCAL COMPETITION:

State should allow computer to pick the cheapest rate for the call or set up a non-profit that could provide this service.

Based in the College of Business Administration at the University of Rhode Island (URI), the Research Institute for Telecommunications and Information Marketing (RITIM) conducts research on the marketing, behavioral, organizational, and strategic aspects of the telecommunications and information technology industries. RITIM's goal is to be the premier academic research center dealing with organizational, behavioral, and strategic aspects of the IT industries. RITIM projects and conferences have been supported by Bell Atlantic, Compaq, Lucent Technologies (AT&T Network Systems), Motorola, Fraunhofer Institute (Germany), Public Utilities Commission of Rhode Island, Rhode Island Economic Policy Council, Rhode Island Economic Development Corporation, Southeastern New England Cable Association (SENECA), Deutsche Bank, Nord L/B, Telecom Italia, Telia, Unisys, Sun Microsystems, VDI Nachricheten (Germany).